NDA Breakdown Now: 12 Promises You're Making When You Sign

As you start looking at listed businesses, gathering more details, and dealing with brokers, you’ll need to understand the importance of NDA’s, Non Disclosure Agreements.

These are legal documents.

I am not an attorney.

But here goes… (For the full newsletter with all the extras, click here.)

The Non Disclosure Agreement is a promise that:

• you won’t share any of the seller’s private information.

• you will only use that information to decide if you are going to buy this business or not.

Why do they need them?

• This is the only way you’ll receive detailed information about a business from either the business owner directly or the broker.

• You’ll receive info such as the exact name of the business, their web address, and basic financial documents.

How to get started?

• Sometimes you can find them online and sign them digitally.

• Sometimes you have to request them, fill them out the old fashioned way.

  • Download, sign, scan and email back

  • There is an NDA from Transworld business brokers in your materials

The broker may request personal info in addition to the NDA signature:

• Like how much money do you have to buy a business?

• What experience do you have?

• You have the Transworld buyer profile as well

Let’s read through this real life NDA together. (See image below.)

They’re all different. Please read each one before you sign it.

A little while back, I requested information on a medical testing business. As you can see, the NDA doesn't even say the name of the business. It just says Healthcare Imaging.

If you look at Part 1, Confidential Information, you can see that the Broker is only the conduit for this information. The info is confidential and proprietary, and this includes everything about their real estate, their personnel, their finances, materials and marketing plans. Whether they submit these items to you in writing or verbally, you promise that you're not going to share any of this information. You can share it with your legal counsel and accountant or lender if you get into that point, but you shouldn't be discussing this with your buddies down at the bar or on the pickleball court.

Moving on to Part 2, this section states that all communications must go through the broker. Now this is one of the bummers about business brokers, because sometimes they're not all that great at communicating and getting back and forth. But if you sign this, you're stating that you're not going to reach out to the seller directly and that all communication will go through the Broker. And then they talk about the repercussions if you try to communicate directly with the Seller. So again, be careful what you sign.

Part 3 of the Non-Disclosure Agreement states that all information and documents concerning this business have to be returned to the seller immediately upon request. I've never had anybody actually ask me to give that information back, but you know, it gets shredded and handled appropriately, because I don't want to accidentally share anybody's secrets.

Part 4 is saying that even though the Seller doesn’t sign this legal document, they are still ‘involved” and can take action to enforce its terms.

Part 5 defines the relationship with the Broker, according to Kentucky law, because that is where the Broker was located.

In Part 6, the Broker again makes no promises himself that this information is accurate at any level. He's just a go between and he's sharing the information. He hasn't verified it. He's not an accountant. He's not an attorney. He's the middleman. You need to get advice from someone else.

Part 7 contains the Procuring Cause. This is a fancy way of saying you acknowledge that the Broker is the reason that you have become interested in this business. Therefore, if there is any kind of a sale, even months and sometimes years down the road, the Broker will be compensated. That's part of why they want to control the communication so heavily, so that they don't get snookered out of their commission, so to speak.

In Part 8, you’re promising that you are not a direct competitor or an employee of a direct competitor out here trying to steal secrets from this company. You're truly just evaluating it to decide whether you want to buy it or not.

Part 9 is saying that if the parties get a little loosey-goosey on enforcing one or more parts of this agreement, it does not invalidate other parts of this agreement or the agreement in total.

Part 10 is stating that if there is a disagreement, everyone agrees to handle the dispute in Kentucky and according to Kentucky laws.

Part 11 says if there is a problem and you end up in court over this, the winner is going to have to pay the loser's attorney fee.

Part 12 is pretty clear and says that faxed signatures and electronic signatures are legally binding.

Again, this is a legal document.

You are going to be signing this.

Make sure you read it and know what you’re promising.

This is the first big outward step to buying a business.

Reply back with any questions.

How many NDAs have you signed so far?